Malaysia

Malaysian procurement system riddled with corruption, says US cable

September 09, 2011

KUALA LUMPUR, Sept 9 — The seedy and allegedly corrupt side of Malaysia’s defence procurement has been laid bare in a US embassy cable, with startling revelations on how Umno politicians, agents, civil servants and military officials receive 30 per cent “commission” on deals.

In a note on the opaque procurement system here revealed by whistleblower site Wikileaks, the US embassy noted that American companies operating here had three main complaints about the system: the lack of transparency, outright corruption, and Bumiputera requirements.

The undated cable sent during the Abdullah administration between 2004 and 2009 also noted that many government tenders do not follow procurement rules.

A US aerospace executive told the US embassy here defence deals were done through shadowy agreements with no tendering process. For example, the then-Prime Minister Tun Abdullah Ahmad Badawi’s (picture) sister-in-law arranged a US$400 million (RM1.2 billion) contract to buy military cargo aircraft from Airbus.

The deal was announced following Abdullah’s return from a trip to France.

“The US executive asserted that PM Abdullah’s brother told him this deal was ‘done for political and other reasons, such as commission’,” noted the US embassy cable made public through Wikileaks.

Similar scenarios were described for the procurement of T91 Polish tanks and SU-30 Russian aircraft, noted the executive, who also said that once someone purporting to work for then-Deputy Prime Minister Datuk Seri Najib Razak approached him about a deal and suggested “you will get a part of it.”

The US embassy noted that Malaysian political parties including Umno rely on “money politics” for much of their operating funds.

“Projects or tenders often are awarded as political patronage with a cut of funds circulating back to the party through different channels,” noted the embassy.

These revelations come at a time when there has been some scrutiny surrounding the deal to buy Scorpene submarine. More than RM500 million was allegedly paid to a local consulting company Perimekar and the opposition has pointed fingers at Najib who was the defence minister when the deal was inked.

Pakatan Rakyat (PR) politicians have also questioned the inflated costs of several new defence deals announced by current Defence Minister Datuk Zahid Hamidi.

The US embassy noted that lack of transparency was also evident when it came to awarding contracts in the information communication technology (ICT) sector. A manager at a US ICT firm pointed out that it was shortlisted for a tender with Telekom Malaysia Bhd but lost to another company that did not even bid for the contract.

Though the cable was sent during the Abdullah administration, there is little evidence that the procurement system has improved. Anecdotal evidence suggests that lip service is paid to open tender system with the preferred choice being direct negotiation.

This trend is especially true for large contracts and concessions where politically-connected companies are involved.

The Malaysian Insider reported yesterday that a consortium led by 1MDB and Puncak Niaga have been given the greenlight by the government to buy IWK for RM1. The consortium will assume the debts of RM1.5 billion but will obtain a concession for 60 years.